Wal-Mart execs discuss South Africa acquisition

AP News
Posted: Jun 02, 2011 4:17 PM
Wal-Mart execs discuss South Africa acquisition

As Wal-Mart Stores Inc. expands its international business, the company wants to carry ideas from a South African chain it is buying to other markets, company executives said Thursday.

Wal-Mart's hotly debated $2.4 billion purchase of a majority interest in Massmart will put Wal-Mart in the building supply business, one of a variety of Massmart store formats. The company expects the acquisition to close in June.

Almost all of Massmart's stores _ 263 of them _ are in South Africa. But J.P. Suarez, senior vice president of international business development, said the world's largest retailer intends to expand Massmart's footprint in southern Africa, where the chain operates in more than a dozen countries as far north as Ghana and Nigeria.

One priority is to offer more refrigerated food, a category lacking among Massmart and its competitors, Suarez said.

"It's going to be a real win for the customer. It's something Wal-Mart has a great expertise in," said Cathy Smith, Wal-Mart's international chief financial officer.

The Massmart acquisition give Wal-Mart access to 50 million new customers.

Wal-Mart International CEO Doug McMillon said the company can expand in Africa as it has in Latin America, serving middle-class customers but also reaching underserved lower-income shoppers.

McMillon said the number of middle-income shoppers is growing in sub-Saharan Africa, as is government stability. He said the company can help develop manufacturers that ultimately can export some of their products, which will help strengthen both the local economy and Wal-Mart's customer base.

The South African government's competition agency approved the deal this week.

Massmart's home building supply stores will be a new venture for Wal-Mart, which Suarez said may have potential for further development.

"We do want to take that capability and learn and apply it to any other market it might be relevant to," Suarez said.

McMillon said the company's expansion plan for China will continue to focus on Supercenters, which combine groceries and general merchandise. To a lesser degree, he said, the company will continue to add Sam's Club warehouse stores and its newer style of smaller-format stores.

Smith said Wal-Mart is working to expand online overseas. It is offering home delivery of groceries in Britain and Japan, and in Brazil it already offers 10 times as many products online as customers can find in stores, Smith said.

Bentonville-based Wal-Mart has launched a limited Internet business in Canada and is starting one in China. Eduardo Castro-Wright, vice chairman of the company and head of its e-commerce unit Global.com and global sourcing, said online business is crucial because it provides people outside the biggest cities the same opportunities that Wal-Mart stores did 50 years ago when they first brought products to rural areas of the U.S.

Castro-Wright also said Wal-Mart is developing shopping opportunities for mobile devices and tapping social networks.

"Everything is changing in ways that it's difficult to predict what will be the next Groupon," said Castro-Wright. "Our customers are part of Facebook ... Twitter and Four Square. They're using the Internet to find ways to improve the shopping experience."

Smith said the company is sticking to its model of minimizing operating costs, buying for less and passing savings on to customers, which she said results in sales growth. The company also is seeking more consistency from country to country and has undertaken a two-year rollout of a new accounting system, she said.

Wal-Mart had to make concessions for the Massmart deal to go through, including promising to honor existing labor agreements for three years and not lay off any workers for two years.

"We think in that market that's what the (employees) want and that's the prevailing practice," Suarez said, noting that the company follows the law wherever it operates.

Wal-Mart also plans to spend $14 million to help local farmers and suppliers gear up to business with it.

Suarez noted South Africa's Competition Commission's approval of the deal could be appealed, but he expects it to close as scheduled.

In afternoon trading, Wal-Mart shares fell Thursday by 76 cents, or 1.4 percent, to close at $53.54.